The 2017 tax reform legislation extended to all types of compensation (including stock grants) the non-deductibility of compensation in excess of $1 million paid to employees of listed corporations under Code section 162(m). IRS private letter rulings issued before the 2017 bill confirmed that the prior limits on cash compensation did not apply to employees of partnerships that had corporations as partners, such as Operating Partnerships of UPREITs.

Even though the 2017 tax legislation did not address whether the section 162(m) limits apply to partnership employees, in December 2019 the IRS issued proposed regulations that would apply such limits to partnership employees in 2019, albeit with a limited binding contract exception. In a Feb. 18, 2020 comment letter responding to proposed Treasury regulations, Nareit opposed the immediate effective date in the proposed regulations given the questionable authority to extend the denial of deducting compensation of partnership employees.

The letter requested that the final regulations not apply for seven years to all taxpayers and not for ten years for those taxpayers who had obtained private letters rulings regarding this interpretative issue.

(Contact: Tony Edwards at tedwards@nareit.com)

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